Social and welfare issues

Shaping the post-crisis global economy

Remarks by Angel Gurría, OECD Secretary-General, delivered at the Islamic Development Bank

10 October 2013, 13h00, Washington, DC, United States

President, Excellencies, distinguished guests, Ladies and Gentlemen,

It is a pleasure to be among you here today and to discuss some of the ways in which we can begin to shape the post-crisis global economy.

The economic outlook: some bright spots, but we are not out of the woods yet!

Five years after the bankruptcy of Lehman Brothers, we are seeing some encouraging signs. Activity is gaining momentum in North America and Japan, and the situation in the euro area is improving. However, there remain a large number of serious risks that will need to be mitigated and challenges that will need to be addressed to put the global economy on a path of sustained recovery. We are not out of the woods yet!

We know the risks well: continued vulnerability of the euro area to renewed financial, banking and sovereign debt tensions; exceptionally high public debt in Japan; deadlock and brinkmanship over fiscal policy here in the US. A new and potentially worrying risk to the global outlook is that growth has also slowed in several major emerging-market economies.

The bottom-line is that we cannot afford to lose momentum for reform! Several countries have taken the opportunity of the post-crisis slowdown to put in place policies that can support growth and create jobs. This is especially the case of the peripheral euro area countries that have been facing market pressure because of their weak public finances.

But at the OECD we believe all countries – not only those in difficulty -- need to go still further. There is always more that can be done to improve economic performance, even in countries that have being doing well.

Priorities for a post-crisis global economy: jobs, equality and trust

There are three corner-stones to building a strong recovery and a new era of inclusive growth: jobs, equality and trust. These are the “missing factors” following the crisis, and we want to help countries bring them back.

Unemployment risks leaving a permanent scar on our societies. There are close to 200 million people unemployed around the world. In the OECD area alone close to 49 million people are unemployed. The jobless rate is at 52% in South Africa, close to 17% in Tunisia and 13.5% in Egypt.

The young have been particularly hard hit. Youth unemployment has risen to around 40% in Italy and Portugal, 55% in Spain, and exceeds 60% in Greece. In the MENA region youth unemployment rates are typically more than double the average rate of joblessness. In addition to unemployment itself, dealing with low-paid employment in insecure jobs with little social protection remains a key challenge in many emerging and developing economies.

Of course, labour markets cannot be revived without sustained growth. But they must also be complemented by growth-enhancing structural reforms and specific actions to build more inclusive labour markets.

For example, to bring people back to work, more active labour market policies are essential. As shown in our latest Employment Outlook and recent advice to the G20, such activation policies have to be tailored to the various obstacles different groups, such as the young, women, migrants, the disabled and older workers, face in gaining access to rewarding and productive employment.

To tackle labour market informality, further extensions of social safety nets combined with stronger incentives for employers to fully and transparently disclose their employees are required. Overly strict employment protection that likely contributes to making employers reluctant to formalise employment relations also needs to be reconsidered.

To help youth get off to a better start in their careers, the OECD has also developed an Action Plan for Youth. This includes concrete policy measures that combine short-term measures to boost job creation for youth with more in‑depth reforms to enhance access to jobs, improve education outcomes and strengthen the compatibility between the skills acquired by students and those needed in the work place.

Inequalities have also been rising.

As we document in our study “Divided We Stand”, during the three decades prior to the recent economic downturn, wage gaps widened and income inequality increased in a large majority of OECD countries. And the crisis has, unfortunately, further widened these disparities. According to OECD analysis, inequality increased more over the three worst years of the crisis, from 2007 to 2010, than during the previous twelve. By 2011, the average income of the richest 10% of the population in OECD countries was about nine times that of the poorest 10%: that’s a ratio of 9 to 1!

Inequality is no less of a concern in emerging-market and developing countries. Countries like China, India, the Russian Federation and South Africa have all become less equal over the past 20 years. What is clear is that the benefits of economic growth are not trickling down. And while Brazil has managed to reduce its disparities, the inequalities ratio in this country is still 50 to 1.

The OECD is seeking to address the challenge of inequality in many areas of its work. But perhaps one of the most effective ways of addressing inequalities is through better education and skills development. Earlier this week in Brussels, I presented the results of our new Survey of Adult Skills. This is a first-of-its-kind tool that assesses the depth and breadth of countries’ talent pools, how well countries use their talent and what benefits they gain.

The Survey confirms that inequality in skills is associated with inequality in income. The numbers speak for themselves: on average across countries, the median hourly wage of workers who get high scores in our literacy test  Level 4 or 5, meaning that they can make complex inferences and evaluate subtle arguments in written texts  is more than 60% higher than the hourly wage of workers who score at Level 1 or below  meaning those who can, at best, read relatively short texts and understand basic vocabulary. Those with poor literacy skills are also more than twice as likely to be unemployed.

Let’s be clear: poor skills severely limit the access of people to basic services and to better paying and more rewarding jobs. This calls for action! At the OECD we are working with countries using the OECD Skills Strategy, adapting it to their national context, and helping them design educations and skills policies that will provide people with the skills they need to thrive in the 21st century global jobs market.

Rebuilding trust is critical.

A myriad of studies and opinion polls reveal a systemic loss of trust in politicians, CEOs, governments, banks, corporations and markets throughout the world.

One of the most worrying signals is the record low levels of trust in the government’s capacity to improve the situation: the 2013 Edelman Trust Barometer, reports that only 15% of the people surveyed trust that government leaders “can solve social or societal issues”, while only 14% trust that these leaders can “make ethical and moral decisions”.

What our nations need is a national Strategy for Trust! At the OECD we believe this is possible and urgent. And we recommend that any such Strategy for Trust should be built on three strong pillars: integrity, transparency and engagement.

Integrity means firmly tackling corruption. At the OECD, we help countries to strengthen trust in the policy making process by turning knowledge into guidelines and principles for best practice in high-risk areas. These include for instance, public procurement, which accounts for 13% of GDP on average in OECD countries. It also includes lobbying: spending on this more than doubled over the past 15 years, increasing from USD 1.44 billion to USD 3.30 billion.

Transparency is crucial across so many domains, including budgets and taxation. Tax transparency is particularly important. Our societies want to feel that they are paying a “fair share” of the tax bill. For example, multinational enterprises (MNEs) are getting out of paying what they owe by shifting profits to locations with favourable tax treatment. Base erosion and profit shifting (BEPS) constitutes a serious risk to tax fairness, tax sovereignty and tax revenues for countries around the globe. The OECD is partnering with the G20 to lead the charge on tackling BEPS through the OECD/G20 BEPS Action Plan, which puts forth 15 ambitious actions that should result in fundamental changes to international tax rules.

Engagement is about giving citizens a voice in the policy process and ensuring that public services are well adapted to people’s needs. The OECD Observatory of Public Sector Innovation is gathering examples of good practice from across the globe to support governments in identifying innovative ways to deliver public services and reach out to communities. Australia, for example, has launched the Next Step online community to better assist parents going back to work after years out of the workforce.

Ladies and Gentlemen,

There is no simple remedy for fixing the post-crisis global economy. There is no doubt that the full range of macroeconomic and structural policies is required. But three key ingredients for sustainable long-term growth are jobs, equality and trust. And we need to work together to achieve progress in these areas: through regional and bilateral initiatives, through the international organisations and through the likes of the G20.

I am proud to say that we are already working closely with the IDB and a number of IDB member countries. We are working with Indonesia through a jointly signed Framework of Co-operation. We are increasing our cooperation with Malaysia, bilaterally and through our Southeast Asia Regional Programme. We are accompanying a number of MENA countries (Tunisia, Libya, Egypt, Yemen, Morocco and Jordan) along their challenging reform process through the OECD-MENA Initiative on Governance and Investment for Development and support to the G8 Deauville Partnership in areas such as investment, SME policies, open government and youth employment.

If you take one message away from this lunch, let it be this: The OECD stands ready to support you in shaping the post-crisis global economy to deliver “better polices for better lives”.

Finally, let me take this opportunity to congratulate you, Dear Dr. Ali, and your team for your excellent work as the 2013 Chair of the Deauville Partnership International Financial Institutions Coordination Platform! We look forward to continuing our fruitful cooperation in the years to come.